Ferrous Metals

The monthly Stainless MMI® registered a value of 64 in August, a decrease of 5.9% from 68 in July and another all-time low in this month where all but one index we track fell to, what we hope, is a new bottom.

Stainless_Chart_August-2015_FNL

Ever since nickel broke a key support level back in March prices have done nothing but free fall, putting nickel at its lowest level since 2009.

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Not only nickel but aluminum, copper and tin have also fallen to levels not since 2009. No one can deny the strong relationship among industrial metal prices.

What a Difference a Year Makes

Just about a year ago, nickel miners were rubbing their hands in glee, expecting that the Indonesian export ban would put the market in deficit. However, Philippine suppliers have taken up the shortfall. Moreover, a strong dollar, record nickel stockpiles and weaker than expected demand from China helped in the decline.

The slump in prices now has nickel miners rethinking output. Australian miner Mincor Resources said in July that it will reduce production by 56% during the second half, as its operations can't be sustained at current price levels.

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Poseidon Nickel, another Australian miner also gave in after saying that its Lake Johnson mine would be put into care and maintenance.

Many are arguing that prices will rise since they are below producers' costs, however, we have previously pointed out that production costs do not determine prices, investors do.

What This Means for Stainless Steel Buyers

We recommend our readers be careful when fishing for a price bottom based on production costs. With commodity prices falling across the board, and weak demand from key consumer China, we might see a few more closures before the upside comes.

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The Stainless MMI® collects and weights 14 global stainless steel and raw material price points to provide a unique view into stainless steel price trends over a 30-day period. For more information on the Stainless MMI®, how it's calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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Could world markets finally see a respite from Chinese steel imports? Molycorp, Inc. vowed in court papers that it won’t completely shut down its Mountain Pass, Calif., facility.

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The monthly Renewables MMI® registered a value of 57 in August, a decrease of 1.7% from 58 in July. Like many other metals that we track, this is an all-time low.

Renewables August 2015

Unlike some of the other metals we track, though, fundamentals haven't really changed that much for silicon, cobalt cathodes and most of the renewable metals we track. The fact that the index fell only 1.7% — a pittance when compared to the steep drops of other indexes — it shows this is a low created by ongoing tepid demand and the bearish environment affecting all commodities.

The Steady, Slow Fall of Renewables

The slow fall of renewables may have more to do with the continually falling commodity prices of oil, liquid natural gas and other competing energy products. Uncertainty over the possibility of Iranian oil hitting the global market is only making crude potentially more competitive with solar panels, wind turbines and other renewable energy investments, too.

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We have long lamented the subsidized nature of renewable energy investments in the developed world and how those subsidies disconnect infrastructure investment costs from actual payback in the form of lower energy prices, but that's something that won't change anytime soon or help renewable energy inputs in the short term. Sorry, Milton, but prices will be just one part of the renewable energy information puzzle for the foreseeable future. We wish it wasn't so, but it's the reality. There is, however, no reason why they shouldn't be a bigger part of that equation.

Subsidies Distort Payback Picture

If renewable energy investments were judged by how much solar panels on your house or, say, wind farms for a utility company, would cost to install and how long it would take lower energy bill prices to pay back those installation costs, we would likely see more US adoption and fewer poor investments in low-wind or solar areas. As it is, though, government incentives artificially distort those costs and create high-adoption areas, such as California, where there are incentives and high adoption and no incentives and low adoption, thanks to low oil and LNG prices, in places without the natural advantages.

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Prices for renewable inputs such as silicon are fairly stagnant in high-adoption countries such as Germany, too. The bearish commodity environment has hit low demand sectors as hard as the higher demand ones.

The Renewables MMI® collects and weights 8 metal price points used extensively within the renewable energy industry to provide a unique view into renewable energy metal price trends over a 30-day period. For more information on the Renewables MMI®, how it's calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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There is growing speculation that a hot-rolled trade case will be filed by US producers next week. US oil refiners, however, has found a sweet spot.

Hot-Rolled Dumping Case Next Week?

The anticipated filing next week of a hot-rolled trade case may yet perk up US flat-rolled pricing, Platts reported, though conditions are steadily deteriorating, market sources said Thursday.

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One buyer told Platts “All this stuff is adding up, but the buyer is yawning because it’s not affecting the market,” he said. “But it will, and they’re going to get caught. It’s almost like the fuse has been lit, but it’s a long fuse.”

Perfect Conditions for US Oil Refiners

Low crude prices and strong demand for gasoline are creating near-perfect conditions for oil refineries across the United States, especially those geared towards maximizing gasoline production.Valero, the country’s largest independent refiner, made a gross margin of more than $13 on every barrel of oil processed in the second quarter, and a net margin of almost $8.50, both the highest since 2007.

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The monthly Raw Steels MMI® registered a value of 55 in August, a decrease of 1.8% from 56 in July.

Raw-Steels_Chart_August-2015_FNL

After Chinese steel prices slumped in July, they fell again in August but were at least more stable. Domestic prices remain low but seem to be stabilizing as well, resulting in our raw steels index dropping by less than 2%. That's a moral victory for steel these days.

Paring the Decline

This was definitely a small decline compared to what we have seen from other industrial metals last month. Aluminum and copper hit 6-year lows. Not only was July a bad month for base metals, it was also bad for any commodity. Gold and oil prices fell 7% and 22%, respectively. With all these declines, the Thomson Reuters/Jefferies CRB Index hit new lows last month.

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Apart from this macro commodity weakness, the fundamentals within the steel industry don't look much better. Chinese demand seems to be getting worse. Construction data shows that demand from the sector has slowed during this first half. Also, the automotive sector is weakening with vehicle sales falling year-on-year for several months.

Weak Overseas Demand Creates More Imports

On top of the weak demand, a strong dollar has made exchange rates attractive for exporters. Export products raised almost 28% in the first half of 2015 compared to the same period in 2014. The increase in exports keeps hurting US producers who last week filed petitions with the Commerce Dept. and the US International Trade Commission against 8 countries the domestic industry believes are receiving illegal government subsidies and “dumping” flat cold-rolled coil products here.

3 Best Practices for Buying Commodities

It seems clear that there is little going on in the market that could push steel prices up this year. But this is not about what could make steel prices rise, the question is more like: When will the market think prices have fallen enough? So far, we haven't seen a shift in market sentiment but that is something that steel buyers might want to pay attention to. Until that happens, it seems risky to buy forward when everything is falling.

Actual Raw Steels Prices

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The Raw Steels MMI® collects and weights 13 global steel and raw material price points to provide a unique view into global steel price trends over a 30-day period. For more information on the Raw Steels MMI®, how it's calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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The Construction MMI® fell again in July, despite strong US non-residential construction and accelerating growth in Europe.

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Metals and energy commodities, such as oil and liquid natural gas, continue to fall on international indexes mostly due to the weak economy and lax demand in China, the world's second-largest economy. The recent volatility in Chinese stock markets shows no sign of abating.

Construction_Chart_August_2015_FNL

The private Caixin/Markit manufacturing purchasing managers' index (PMI) for China dropped to 47.8 in July from 49.4 in the previous month.

Chinese Economy Still Falling

It is worse than a preliminary reading of 48.2 and is the fifth consecutive month of contraction in the sector. With falling demand in such a large market, it is difficult to foresee a turnaround in the metals that make up our index. The Construction MMI® registered a value of 72 in August, a decrease of 2.7% from 74 in July.

While construction activity is strong in the US and Europe, emerging markets and China continue to drag down prices and overproduction of materials for export is actually exacerbating oversupply.

Try Not to Catch Falling Knives

The oversupply in aluminum, in particular, is worsening. Alcoa, Inc., recently raised its forecast for the global aluminum surplus, expecting a surplus of 760,000 metric tons this year which is almost double Alcoa’s previous forecast.

Three Best Practices for Buying Commodities

It remains a good time to be a buyer with double-digit declines in fuel surcharges and lower prices across the board for all construction products including rebar and H beams tracked in the index. With the price of oil back below $50 a barrel we are likely to continue to see falling US fuel surcharges and lower cost transportation and shipping charges.

Construction purchasing in the US is now a waiting game as estimators and project executives questions become some version of "how long do I wait before buying" to achieve a truly low price before markets bottom out, rather than how quickly to purchase to avoid non-existent price spikes.

The Construction MMI® collects and weights 9 metal price points used within the construction industry to provide a unique view into construction industry price trends over a 30-day period. For more information on the Construction MMI®, how it's calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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China’s largest steelmaking city is embarking on an ambitious environmental clean up plan and Alcoa, Inc., is not giving an inch in its fight against the Commodity Futures Trading Commission.

Cleaning Up Hebei Province

Iron and steel production in the Northern Chinese city of Tangshan has been reduced by 22 million metric tons in an effort to control air pollution and reduce outdated capacity.

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Tangshan, in Hebei Province, accounts for half of all iron and steel produced there, which is a well-known steelmaking region. An estimated 96% of Tangshan’s industrial output is taken up by steel, coking, cement and electric power and this had led to severe air pollution.

Alcoa Criticizes CFTC Again

Major aluminum producer Alcoa has stepped up efforts to challenge the Commodity Futures Trading Commission’s, the top US commodities regulator, intervention in the London Metal Exchange‘s warehousing reform plan, criticizing its handling of the issue for a second time in as many months.

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In a letter dated July 27, Alcoa general counsel Max Laun called on Timothy Massad, chairman of the CFTC, to retract a letter announcing its decision to delay ruling on the LME application to register as a “foreign board of trade” in the US.

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There was no joy in automotive metals this month as prices retreated again amid ample supply and not enough worldwide demand.

Automotive_Chart_August-2015_FNL

The monthly Automotive MMI® registered a value of 76 in August, a decrease of 7.3% from 82 in July, another all-time low for the index. Before the last two months, its previous low was 85.

Steel Prices Falling

Base metals remain in a bearish market, one that's starting to edge on historic proportions. Also, a glut of imported steel in the US market continues to drive down prices domestically while the lack of demand overseas only exacerbates the problem here.

Three Best Practices for Buying Commodities

US steelmakers have been forced to rely on anti-dumping actions again in hopes of creating some semblance of market equilibrium.

Steel is not the only ingredient in the Automotive MMI and its fall has been helped along liberally by steep falls for aluminum, palladium, platinum and copper.

Vehicle Sales Faltering

At least in the US, sales of automobiles are still strong, too. A sales collapse in China is one of the many effects of the stock market crash and slow economic growth there.

“There’s excessive competition and automakers are building excess capacity, and to raise utilization of the plants, they will engage in excessive selling,” Fumihiko Ike, chairman of the Japan Automobile Manufacturers Association, said in reference to the market many are looking at to create global sales increases.

The Chinese market is generally regarded as one that provides higher sales margins to manufacturers and Volkswagen, BMW and other manufacturers are taking on a hit on sales there.

With a continuing metals surplus and only the US end-user market in decent shape, it's difficult to predict a turnaround for the Automotive MMI. The Thomson Reuters/Jefferies CRB Commodity Index is hitting new lows as well.

Actual Automotive Metals Prices

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A major European steelmaker will spin off its long products division rather than sell and many are betting on lower prices of London Metal Exchange copper.

Tata Steel Won’t Sell Long Products Division to Klesch

Tata Steel Ltd. has spun off its long products unit — which makes items such as plates, sections and wire rods — into a standalone business to better pursue strategic options, after the reported withdrawal of Klesch Group from talks to buy the division.

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India-based Tata Steel, Europe’s second-largest steelmaker, said in October it was in talks to sell the loss-making long products operation, which employs 6,500 people mostly in Scunthorpe in the English midlands, to Klesch.

Funds Betting on Lower Price for LME Copper

More funds are betting copper prices on the London Metal Exchange will fall further over the coming days and weeks, highlighting expectations of weaker demand growth in top consumer China. Money managers’ net short positions rose to 5,249 lots or 131,225 metric tons on Friday from 1,359 lots the previous week, the exchange’s Commitments of Traders Report showed on Tuesday.

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August forecast reportThe August metal price forecast is here! MetalMiner™ is proud to announce the commercial launch of its monthly buying report, featuring 30-day price outlooks for aluminum, copper, nickel, lead, zinc, tin and steel (HRC, CRC, HDG, Plate). Before we forecast August, let’s take a quick look back at July:

  • We remained “bullish” on the dollar and watched it rebound to a 6-year high
  • We watched aluminum, copper and nickel hit 6-year lows
  • China’s stock market decline impacted base metal prices in a negative way
  • Oil price declines last month stressed commodity weakness

All we can tell you about August is that any industrial buying strategy warrants a watchful eye. Want to know more? You’ll have to subscribe to our monthly outlook reports. An annual individual subscription of 12 monthly reports can be yours for $899/year.

More info and to subscribe

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